What exactly is a mutual fund, and how do I invest in one?
audidriver79 asked:
I have some settlement money (about $28K) that I would like to invest. Everyone tells me to put it in a mutual fund. Can someone explain to me what exactly a mutual fund is? Will I be able to cash it out whenever, or do I have to keep it in for a certain number of years? Can I buy a mutual fund through Scottrade? What’s the best mutual fund?
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I have some settlement money (about $28K) that I would like to invest. Everyone tells me to put it in a mutual fund. Can someone explain to me what exactly a mutual fund is? Will I be able to cash it out whenever, or do I have to keep it in for a certain number of years? Can I buy a mutual fund through Scottrade? What’s the best mutual fund?
April 1st, 2009 at 3:31 am
There are Investment Mutual Funds and Checking account Mutual Funds.
If you want a long term investment Mutual funds invest in a field of stocks and other investments. They offer varialbe risk from low to high.
Choose wisely.
If you want access to the money, a checking type mutual fund will give a high rate of return, 4-5% possible.
Good Luck
April 2nd, 2009 at 9:20 pm
You can buy a mutual fund through Scottrade. There are thousands of mutual funds so you should discuss your goals and needs with a representative from Scottrade or some other broker before you buy.
A mutual fund is a group of stocks (many stocks) that a brokerage puts together and sells to investors. A mutual fund can have many stocks or just a few. It can invest only in US Bonds or US stocks or overseas stocks or funds. It can be conservative or risky.
You can sell the fund whenever you want to, although some funds might have a 90 day holding period (or some other specified length). You might make some money when you sell it, or you might lose some money.
Discuss all of this with your broker.
Just a word of caution — do NOT put all the money into one fund.
April 4th, 2009 at 12:38 pm
First what is a Mutual fund?
It is a fund, managed usually by a team of people. This fund invests money in different securities. There are many different types of mutual funds. Some funds buy just stocks, they are made up of many different company’s stock. They may have several million in GE, Exon Mobile, Wal Mart etc. Next, there are bond funds which invest in many different types of bonds. Some corporate bonds, government bonds, and municipal bonds. There are also index funds, which invest in certain securities associated with a certain index. For instance, there are S&P 500 index funds, meaning the fund mimics the S&P 500. So if the S&P is up 2% than your fund is up 2% for the day. This is the basic plot for mutual funds, there are many more types.
Owning a mutual fund is like owning shares of stock. You can cash out when ever, there is no time limit or constraint.
While you can buy mutual funds over the internet, it is best to go to a broker. There is usually no commission fee to purchase a mutual fund as would if you were buying stocks. Being new to invseting, you should get the advise of a broker.
There is no best mutual fund, there are thousands of them, and certain people like certain funds. Some grow slow and steady with lower risk, while others have potential to grow very fast, but with more risk. Its a complicated concept at first, but you are making the right decision by investing in a mutual fund.
April 6th, 2009 at 9:52 pm
DO NOT BUY MUTUAL FUNDS! they will give you poor results….ask the people that are telling you to buy mutual funds how much $ they have made w/ theirs…..majority of them will say they have lost money. I lost over 33% since august of my 401k that was all mutual funds….educate yourself on how to invest your own money….1 reason is you will have alot more time and flexability then having someone who has hundreds or even thousands of accounts to monitor (brokers) 2 you will only have to pay for trades not all the other fees tied in w/ a broker. 3 you will never lose w/ education and it will never depreciate… 4 invest in yourself and go to a seminar or 10. if you feel like you have to have someone handle your money then tell them to do what they are doing w/ their money and ask them what their return on investment is, if its less then 10% a month move on until you find someone that is producing those #’s! this is an awsome time to be in the market and millions are being made now, if someone can show how to make over 10% then they dont know what they are doing!!! dont believe the hype about mutual funds they are really a joke…..theres so much more potential w/ stocks and etf’s….ask them about ETF’s they are like mutual funds just w/ a higher return, they can have stops and less expensive to maintain!
April 9th, 2009 at 4:30 pm
Mutual funds are fund pools that are mutually invested in by many people. These funds are usually spread through many types of stocks. Dave Ramsey suggests investing in 4 different types of funds: growth, growth & income, aggresive growth, and international.
according to investopedia.com, “Most growth funds offer higher potential capital appreciation but usually at above-average risk. Growth funds are more volatile than funds in the value and blend categories. The companies in a growth fund portfolio are in an expansion phase and they are not expected to pay dividends. Investing in growth funds requires a tolerance for risk and a holding period with a time horizon of five to 10 years. ”
according to first american funds, growth and income funds are “Funds that seek total return through a combination of both capital appreciation and income.”
according to investopedia.com, “Aggressive growth funds have large betas, which means they have a large positive correlation with the stock market. They tend to perform very well in economic upswings and very poorly in economic downturns. An aggressive growth fund may also invest in a company’s IPO and then quickly turn around and re-sell the same stock to realize large profits. Some aggressive growth funds also invest in options to boost returns.” Dave suggests if this type of fund is to risky for you, that you include some money in them but more in a balanced mutual fund (A balanced fund is geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts that such a mutual fund invests into each asset class usually must remain within a set minimum and maximum.
Although they are in the “asset allocation” family, balanced fund portfolios do not materially change their asset mix. This is unlike life-cycle, target-date and actively managed asset-allocation funds, which make changes in response to an investor’s changing risk-return appetite and age, or overall investment market conditions. ) without the volatility.
according to investopedia.com, “Many people confuse an international fund with a global fund. The difference is that a global fund includes the entire world, while an international fund includes the entire world excluding the investor’s home country.”
These are TYPES of funds. It’s completely up to you to research mutual funds that fall into these types of funds. There are hundreds of funds in each category to choose from, encompassing many types of companies. Some funds may fall into a specific industry, such as a medical mutual fund that invests in different medical companies, or a tech mutual fund that invests in different technical companies.
Mutual funds are best left alone for at least 5 years, if not longer so that you will start seeing some good growth in your funds.
I don’t know if Scottrade does mutual funds, however, Dave Ramsey has on his website a link to one of his endorsed local providers, who are professionals in their industry with many years of experience under their belts and the heart of a teacher. They will guide and advise you on investments but should not try to sell you anything.
EDIT: to declaar:
What you are experiencing right now in mutual funds is a rare occurrence in the stock market as a whole. 95% of all 5 year periods in the history of the stock market have made gains. There are exceptions, such as the great depression and the 5 year period after Richard Nixon resigned where it took 5 years or more for the stock market to recover to previous levels, but the market *usually* recovers within a year or two. This period of decline is unusual in its drop and in its length. But it will recover. Some people look at the drop in value, take their losses and run and some people look at the market like its on sale and start buying more, while waiting for the market to recover. Mutual funds are insulating funds in that, if a company inside the fund folds, you loose some money, but you won’t lose your entire investment since your money is spread out into many different companies. And lets face it, Walmart may not be growing as fast as it used to a few years ago, but it’s not going out of business anytime soon.
April 10th, 2009 at 5:27 am
Here is a good website to learn about mutual funds:.
ETF’s (Exchange Traded Funds) are a better choice in my opinion.
A good website is:
A good book:
All About Exchange Traded Funds
Written by Archie Richards, Jr.
ISBN : 0-07-139302-1
Note: The book covers both mutual funds (Chapter 3) and ETF’s.
It also covers IRA’s and Variable Annuities (Chapter 12).
It would be worth it to purchase and read the book.
Better now (before you make an investment mistake with the $28,000.00) than later.
Yes, you can buy both mutual funds and ETF’s through Scottrade.